Source
r/realestateinvesting•
Resounding

Is this IRR calculation correct?

Recently have become interested in hard money lending and was looking at how to calculate the financials around the loan.

I found this website. For their first IRR calculation (for years 1 2 and 3, the first screenshot) I'm getting the same answer. However, for their calculation on the monthly basis (the second screenshot) the IRR I'm calculating is about 1%, not 13.2%.

Can someone please help me out and let me know what I'm doing wrong? Here's what's my calculations are: https://imgur.com/a/50a7Ezj

Posted Aug 17, 2018, 8:03 PM UTC

16
illinifan989•

When calculating IRR, Excel assumes that your cash flows are annual, rather than monthly. To convert, your formula is (1+Annual IRR)^12 - 1

6
ResoundingOP•

That makes it work. Thanks!

1
fitkatsnacks•

The XIRR function is a cleaner way to get around this issue and is great for date specific cash flows (which RE often is).

3
JoshuaLymanMulti-Family | TX•

Over a 12 year period you show $37K income on a $292K investment. I'm thinking you need to add a zero to the annual interest...

1
ResoundingOP•

It’s a monthly period, not yearly. So 12 months. Does the IRR function assume years? That’s probably where I’m wrong.

1
JoshuaLymanMulti-Family | TX•

Yes. I can't say I'm a super expert, but try XIRR which I like better because it also deals with irregular in and outflows.

1
[deleted]•

[deleted]

1
IntelligentGuava2•

The calculation is accurate as per excel. However you will get the same answer if you calculate IRR with financial calculator.

1